Explorers 2012: Buccaneer Alaska in E&P mode; jack-up here

Independent has Cook Inlet basin exploration onshore, offshore prospects; Cosmo to be first offshore well

Kristen Nelson

Petroleum News

One of Cook Inlet’s newer explorers, Buccaneer Alaska has multiple exploration prospects, onshore and offshore, in the Southcentral Alaska Cook Inlet basin, has gone into production at its onshore Kenai Loop natural gas field and has the Endeavour — Spirit of Independence jack-up rig undergoing modifications in Cook Inlet.

A statement by the company on Oct. 5 indicates that the Cosmopolitan prospect off the southern coast of the Kenai Peninsula will be the first well Endeavour will drill, with a well expected to spud in late November to early December.

The parent company, Buccaneer Energy, is a Sydney, Australia-based independent founded in 2006. Buccaneer came to Alaska in March 2010 when it acquired assets, and some executives, of Stellar Oil & Gas LLC, a sister company to Renaissance Alaska LLC. The company has since added to its Alaska acreage and currently has some 75,000 acres of Cook Inlet state oil and gas leases, both onshore and offshore.

The company’s first producing field, Kenai Loop, is selling natural gas to Cook Inlet Natural Gas Storage Alaska, the new storage facility on the south side of the City of Kenai owned by Semco Energy, MidAmerican Energy Holdings Co., Cook Inlet Region Inc. and First Alaska Capital Partners.

Buccaneer brought the Kenai Loop No. 1 online in January. When it began selling natural gas from the well in April, the company said its contract requires it to provide at least 5 million cubic feet per day to CINGSA, but it can sell as much as 15 million cubic feet per day.

Buccaneer also has an agreement to sell Kenai Loop natural gas to ConocoPhillips for use at its Nikiski liquefied natural gas facility, should the storage facility shut down.

The Kenai Loop 3 was a dry hole; Buccaneer is currently drilling Kenai Loop 4, which spud in mid-September.

Cosmopolitan

Buccaneer now plans its first offshore drilling at Cosmopolitan, off the coast of the southern Kenai Peninsula near Anchor Point, some 30 miles northwest of Homer.

Buccaneer and BlueCrest Energy Inc., a privately held independent out of Fort Worth, closed on acquisition of Cosmopolitan from Pioneer Natural Resources Alaska in late August. Buccaneer has a 25 percent working interest in Cosmopolitan and is the operator in the two-lease prospect.

The company has said it will drill from offshore, using the Endeavour, and from an onshore drill site used by previous owners in recent Cosmopolitan drilling.

Cosmopolitan, then called Starichkof, was discovered by Pennzoil in 1967, when oil was found in the Lower Tyonek reservoir sands and produced at relatively low rates during a drill stem test. No further work was done at the field until 2001 when Phillips Alaska (now ConocoPhillips Alaska) drilled the Hansen No. 1, a sidetrack and shot 3-D seismic over the region. ConocoPhillips sold the prospect to Pioneer Natural Resources Alaska in 2006; Pioneer drilled a lateral off the sidetrack and conducted a flow test, but decided not to pursue full-scale development. Alaska Oil and Gas Conservation Commission records show cumulative production of 33,504 barrels of oil, 10,122 barrels of water and 119 million cubic feet of natural gas.

Buccaneer has said in the past that it plans to use the jack-up to conduct shallow gas drilling from offshore, while directional wells would be drilled from an existing onshore pad targeting oil.

Southern Cross, Northwest Cook Inlet

Buccaneer has deferred drilling at the Southern Cross and Northwest Cook Inlet units in Cook Inlet until next year.

While the Alaska Division of Oil and Gas found Buccaneer Alaska in default under its Southern Cross and Northwest Cook Inlet unit agreements for failure to drill at the two offshore Cook Inlet units this year, it did not terminate the units, but set conditions for the company to cure the defaults, including completing the first wells at both units by Oct. 31, 2013.

Buccaneer requested extensions until next year for drilling the first wells at the units, requesting the Southern Cross extension in July and the Northwest Cook Inlet extension in September.

The company’s plans of exploration called for beginning wells at both units by Sept. 30, 2012.

Division Director Bill Barron said in Oct. 1 letters to Buccaneer that while the units are in default, failure to drill the wells this year will not result in unit termination, the penalty proposed by Buccaneer in its plans of exploration.

Barron said the state’s approval of the units was based not only on the work commitments, but also “on the exploration and development benefits of Buccaneer bringing a jack-up rig to Cook Inlet that would not only serve Buccaneer in drilling its prospects, but could also create a unique circumstance where the rig could be shared with other operators, thereby promoting exploration and development of other offshore Cook Inlet fields and providing increased potential for economic growth and employment opportunities.”

Delay related to jack-up

In requesting a delay for the Southern Cross unit well, Barron said Buccaneer cited the delayed arrival of the Endeavour jack-up, the unavailability of another jack-up drilling rig in upper Cook Inlet and the requirement to discontinue drilling by Oct. 31. He said Buccaneer provided a schedule of costs and additional shipyard work that resulted in the delay of arrival. The upgraded Endeavour arrived in Cook Inlet Aug. 24.

In requesting the delay for drilling at Northwest Cook Inlet Buccaneer cited the delayed arrival of the Endeavour, delays due to additional work required on the rig in Homer and severe weather in September that prevented Buccaneer from beginning drilling operations on or before Sept. 30.

Buccaneer said Oct. 5 that the jack-up has been undergoing final work and regulatory inspections since it arrived in Cook Inlet and listed three “critical path items” needed for the jack-up to receive final permits to operate in Cook Inlet:

•Fast rescue craft: Buccaneer said the craft purchased and installed in Singapore was approved for Arctic service, but the manufacturer issued a recall notice on the craft due to undetected manufacturing deficiencies, requiring replacement with a factory-provided upgrade.

•General alarm system: Buccaneer said the system was repaired and certified in Singapore but failed during testing upon arrival in Homer. Repairs have been ongoing since, but the company said it is an old system and availability of parts has delayed repairs, resulting in a decision to order and install a new system.

•Firefighting system: The system installed and certified in Singapore developed a valve leak during transit which was discovered upon arrival in Alaska. The special fire suppressant refill and replacement valve have been ordered but delivery has been delayed.

The company said that while delays have been frustrating, “and largely outside of Buccaneer’s control, our priority is to have a fully operational and efficient jack-up rig that ensures the safest possible working conditions for crews and the sensitive environment in which it will operate.”

Requirements to cure

Barron set similar requirements for each unit to cure the default.

By Oct. 31, 2013, Buccaneer must have drilled, logged, and completed, suspended or abandoned wells in block A of each unit.

At the Northwest Cook Inlet unit the well must be drilled to the base of the Beluga formation; at the Southern Cross unit the well will be drilled to the pre-Tertiary interval stratigraphically equivalent to the Jurassic interval from 9,042 feet measured depth to a total depth in the Shell MGS SRS State No. 1 well.

For both units second plans of exploration will be submitted by Sept. 1, 2013, with plans to drill the second unit exploration wells in block B of the units.

Endeavour investment

Barron said the state recognizes “the significant investment” Buccaneer made in acquiring and refurbishing the jack-up and mobilizing it to Cook Inlet, allowing “the potential to create numerous economic benefits” for the state.

By drilling the two wells in 2013, the unit operator and the units “will remain in good standing,” Barron said.

Buccaneer Energy and Ezion Holdings Ltd. formed Kenai Offshore Ventures in 2010 to acquire a jack-up for work in Cook Inlet.

The rig was purchased, modified and mobilized by Kenai Offshore Ventures through a public-private partnership with the Alaska Industrial Development and Export Authority.

Jim Watt, president of Buccaneer Alaska, said Buccaneer “spent a significant amount of time and effort outfitting the Endeavour to make it ‘fit for purpose’ for work in the inlet, and once it’s on station will stay for years to come, providing the citizens of Southcentral Alaska with the key to unlock the vast amounts of oil and gas locked in the Cook Inlet.”

While Buccaneer plans to make initial use of the jack-up, Kenai Offshore Ventures wants to eventually make the rig available to third parties in Alaska

Onshore exploration prospects

Onshore, Buccaneer has two exploration prospects — West Nicolai Creek on the west side of Cook Inlet and West Eagle northeast of Homer on the southern Kenai Peninsula.

West Eagle is east of the Red pad natural gas well Hilcorp Alaska is working to put into production and east-northeast of the North Fork natural gas field which Armstrong brought online in April 2011.

On its website Buccaneer describes West Eagle as an oil and gas prospect and says two wells included in the leased area show potential oil and gas pay on logs. The company estimates an upside of 10 million barrels of oil in the Hemlock formation and 100 billion cubic feet of natural gas in the Tyonek formation, with estimated initial production rates of 300 barrels of oil per day and 10 million cubic feet of gas per day per well.

The company said an in-house estimate for an initial well includes 5 million barrels of oil and 20 bcf of natural gas.

Buccaneer’s website listed 49,277 acres in this prospect, but the majority of Buccaneer tracts in this area expired at the end of September.

Buccaneer’s other onshore prospect, West Nicolai Creek, is west of the Aurora Gas-operated Nicolai Creek gas field on the west side of Cook Inlet. On its website Buccaneer estimates an initial rate of 6 million cubic feet of gas per well. Buccaneer says this is a 5,653-acre prospect and says an in-house resource potential for the prospect is 7 bcf of natural gas.

The lease at this prospect runs through early 2018.

—A copyrighted oil and gas lease map from Mapmakers Alaska was a research tool used in preparing this story.